ECJ C-717/19 (Boehringer Ingelheim) – Judgment – Reduction of the taxable amount even if not established on a commercial policy

On October 6, 2021, the ECJ issued its decision in the case C-717/19 (Boehringer Ingelheim).

Context: Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112 / EC – Article 90 (1) – Reduction of the tax base in the event of a price reduction after the time the transaction is formalized – Contributions paid by a pharmaceutical company to the state health insurance body – Article 273 – Administrative formalities imposed by national regulations for the exercise of the right to reduction – Principles of fiscal neutrality and proportionality

Summary

Context and Legal Framework: The European Court of Justice (ECJ) ruled on October 6, 2021, in Case C‑717/19, focusing on the interpretation of Article 90(1) and Article 273 of the VAT Directive (2006/112/EC). The case arose from a dispute between Boehringer Ingelheim RCV GmbH & Co. KG and the Hungarian tax authority regarding the company’s right to reduce its taxable amount for VAT based on payments made to the State health insurance agency (NEAK).
Key Findings on Price Reductions: The Court determined that Article 90(1) must be interpreted to allow for a reduction in the taxable amount when a pharmaceutical company reimburses NEAK under a voluntary funding agreement, even if the payments are not explicitly classified as promotional discounts. The ruling emphasized that the taxable amount should reflect the consideration actually received, meaning that if part of the price is not retained by the supplier due to these payments, it constitutes a price reduction.
Principles of Fiscal Neutrality and Proportionality: The ECJ highlighted the principles of fiscal neutrality and proportionality, asserting that national laws must not create barriers that prevent a reduction in the taxable amount when a legitimate price reduction occurs. The Court stated that the absence of an invoice should not prevent the company from proving the transaction through other means, thereby maintaining VAT neutrality.
Conditions for Reduction of Taxable Amount: The judgment established that national laws requiring an invoice for VAT reductions could infringe upon the principles of EU law if they made it excessively difficult for companies to claim such reductions. The Court ruled that, even without an invoice, other documentary evidence could suffice to demonstrate the transaction and justify a reduction in the taxable amount.
Implications for VAT Treatment: The ECJ’s ruling clarifies that Member States cannot impose overly stringent conditions that limit the ability of taxable persons to reduce their VAT obligations in instances of price reductions. This judgment not only supports pharmaceutical companies in Hungary but also reinforces the broader principles of VAT neutrality and the treatment of discounts in the EU, ensuring that similar cases are handled consistently across member states.

Article in the EU VAT Directive

Articles 90(1) and 273 of the EU VAT Directive 2006/112/EU

Article 90 (Taxable amount)
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.

Article 273

Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.

Facts (simplified):

The applicant, a pharmaceutical company, submitted a supplementary VAT declaration. By doing so, it reduced the amount of VAT due for that tax period, invoking payments made under special civil law agreements between it and the Hungarian National Health Insurance Fund (NEAK), a public health insurer.

The agreements relate to the medicinal products marketed by the applicant, whereby the applicant agreed to make payments to NEAK on the basis of the number of sales of those medicinal products subsidised by social security. These payments were deducted from its turnover from the sale of the medicinal products.

The applicant sells the medicinal products directly to the wholesaler, the wholesaler to the pharmacy and the pharmacy in turn to the patient, at a price from which the amount subsidised by social security is deducted. NEAK subsequently reimburses the amount of the subsidy to the pharmacy, which pays VAT on both the amount paid by the patient and the amount paid by NEAK.

The applicant is not under a legal obligation to conclude the agreements, but the conclusion of the agreements enables it to ensure that the medicinal products which it markets are subsidised by social security. This is also advantageous for NEAK, as it enables NEAK to make new and modern medicinal therapies subsidised by social security available at all times to patients who need them.

In view of the payment requests, bank statements, prices used as a basis for the subsidy and other important data in the agreements, the tax authority at first instance rejected the applicant’s supplementary declaration and did not authorise the retrospective reduction of the taxable amount. The defendant, the Opposition Division of the Hungarian National Tax and Customs Administration, upheld the decision at first instance and took the view that the payments made to NEAK did not comply in substance with the conditions laid down in Paragraph 77(4) of the Law on VAT, namely that they must form part of the business policy of the company or have sales promotion as their objective.

Consideration

The national court states that the Court has not yet ruled on the question whether the retrospective reduction of the taxable amount is possible even if the reduction is not granted under a mandatory provision of national law but on a voluntary basis. The referring court takes the view that, in the present case, NEAK must be regarded as the final consumer of the goods supplied by the applicant, with the result that the amount collected by the tax authority cannot exceed the amount paid by the final consumer. It follows that, since, as a result of the reduction granted by the applicant to NEAK, the taxable person does not receive part of the consideration, there was in fact a price reduction in accordance with Article 90(1) of the VAT Directive at the time the transaction was carried out. In those circumstances, the applicant was not in a position to freely dispose of the total price it had received following the sale of its products to pharmacies or wholesalers. As regards the second question, the national court states that the Member States may impose additional obligations in accordance with Article 273 of the VAT Directive in order to ensure the correct collection of VAT. The Hungarian legislation makes the retrospective reduction of the taxable amount subject to presentation of a copy of the invoice certifying that the transaction has been carried out. In the present case, no invoice was sent, but only the request for payment sent by NEAK to the applicant and the bank statement proving payment by bank transfer are available. This ensures the correct collection of VAT, despite the absence of an invoice. The referring court therefore questions whether the restrictions imposed by the Hungarian legislation are proportionate to the objective pursued.

Questions

“Is a national rule under which a pharmaceutical undertaking which makes payments to a public health insurer on the basis of turnover from the sale of medicinal products under a voluntary agreement is not entitled to reduce the taxable amount retrospectively contrary to Article 90(1) of the Directive?”

Is Article 90(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which a pharmaceutical company which makes payments to a public health insurer on the basis of turnover from the sale of medicinal products under a voluntarily concluded contract is required to make such payments, and therefore does not receive full reimbursement for those medicinal products, is not entitled to reduce the taxable amount retrospectively, merely because the payments were not made in a manner determined in advance in its business policy and not with sales promotion as the main objective?

If the answer to the first question is in the affirmative, must Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as precluding national legislation such as that at issue in the main proceedings, which makes the retrospective reduction of the taxable amount subject to the condition that the performance of the act giving rise to the entitlement to repayment is evidenced by an invoice issued in the name of the person entitled to repayment, even if the act giving rise to the retrospective reduction of the taxable amount is sufficiently documented, based on information which can be verified retrospectively, is partly public and authentic, and enables the tax to be correctly collected?

AG Opinion

None

Judgment

1. Article 90(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as precluding a national law that provides that a pharmaceutical company may not reduce its taxable amount for value added tax by the portion of its revenue obtained from the sale of medicinal products subsidised by the State health insurance agency which it reimburses to that organisation under a contract entered into by the State health insurance agency and that company, because the amounts paid in that regard were not set out in advance by that company in its commercial policy and because those payments were not made for promotional purposes.

2. Article 90(1) and Article 273 of Directive 2006/112 must be interpreted as precluding a national law where the subsequent reduction of the taxable amount for value added tax is subject to the condition that the person entitled to the refund has an invoice in the relevant name providing proof of the transaction giving entitlement to that refund, even where such an invoice has not been issued and where proof of that transaction may be determined by other means.

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